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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Debt Management and Loans

Under the Fixed Obligation to Income Ratio (FOIR) approach used by lenders, which of the following is included in the numerator when assessing a borrower's eligibility for a new home loan?

The numerator of FOIR includes all existing EMIs along with the proposed EMI, because lenders want the total fixed debt obligation relative to income. Household expenses and SIPs are not contractual loan obligations, and using only the new EMI would understate the borrower's repayment burden.

  1. AExisting EMIs on other loans plus the proposed EMICorrect
  2. BOnly the proposed home loan EMI
  3. CMonthly household grocery and utility expenses
  4. DMonthly SIP investments made by the borrower

Explanation

FOIR measures fixed obligations, i.e., all EMIs including existing loans and the proposed loan, as a percentage of net monthly income. Living expenses and voluntary investments such as SIPs are not loan obligations, so they are excluded. Counting only the new EMI understates the borrower's burden.

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